INDEPENDENT BANK CORP /MI/ Q1 FY2025 earnings call

Key Points

• Brad Kessel noted net income, loan and deposit growth, net interest income growth, margin expansion, and strong credit metrics.
• Joel Rahn discussed loan growth, commercial loan generation, team additions in commercial banking, and credit quality metrics.
• Gavin Mohr talked about net interest income, net interest margin, interest rate risk position, non-interest income, non-interest expense, 2025 outlook, and share repurchases.
• The company launched a redesigned website, emphasizing being a people-first bank.

In the first quarter of 2025, Independent Bank Corporation reported net income of $15.6 million or $0.74 per diluted share, down from $16 million or $0.76 per diluted share in the prior year. Loans increased 3.4% annualized, while core deposits are up 0.8% annualized. Net interest income grew with a 4 basis point margin expansion. Total deposits at March 31, 2025 were $4.63 billion. Core deposits increased $9.1 million during the quarter, with retail deposits up $34.2 million, business deposits down $44 million, and municipal deposits up $18.9 million. Loans saw $34 million growth, with commercial loans growing $54.8 million (11% annualized), residential mortgage down $3.9 million, and installment loans down $17 million. Credit metrics were strong with nonperforming assets to total assets at 14 basis points, net charge-offs at 1 basis point annualized, and allowance for credit losses at 1.47% of total loans.

• Loan growth in the first quarter was below the mid-single-digit forecast.
• Net interest income growth was within the high single-digit forecast.
• Net interest margin was 3.49%, up 4 basis points linked quarter.
• Provision for credit losses was below the forecasted range.
• Non-interest income was lower than the forecasted range.
• Share repurchases occurred in Q1 and after quarter end.

• Monitoring automotive industry exposure for tariff-related impacts.
• Market uncertainty affecting borrower sentiment.
• Deposit remix pace slowing.
• Interest rate risk sensitivity to declining rates.

Q: Good morning, folks. Obviously, a really nice strong start to the year. And I know that you don't typically update the guidance that you provided at the start of the year. But I'm just kind of curious as you sit here today, you look at that guidance three months ago, where do you think you could potentially outperform given that strong start?

A: Yeah. I'd probably start Brendan with the provision given that where we came out of the gate. I think there's probably opportunity depending on where the -- what happens within the next few months with the -- on the deposit side if we would see some rate cuts, we may be able to pick up a little bit there. But overall I think we're really on plan and out of the gate as we expected.

Q: Good morning. I was wondering, could you guys talk what the conversations are like with the clients just given all the uncertainty? And I realize it's early, but are you starting to see any stress from your borrowers? You mentioned you're watching the automotive portfolio more closely.

A: Yes sure. No, it's a good question and a difficult one to answer. But in terms of where it's going, so there’s a lot of uncertainty, as we all know. And we focus primarily on the automotive industry within our portfolio, which as I said in my comments is pretty small piece of the overall pie, about 6.5% of our portfolio in automotive exposure. So, it's really a blessing to have a well-diversified portfolio. But what we're hearing, the business owners certainly are watching it, trying to figure this out, trying to figure out what the potential impacts are. We're not seeing any tangible impact yet today, because many of the tariffs aren't even implemented yet. Anecdotally, we're hearing from a couple of stamping customers that steel supply is getting harder to come by, because the OEMs and the large Tier 1s have been purchasing up the kind of any excess of domestic steel inventory and trying to get ahead of the tariff game. So I mean that's probably the most tangible piece of feedback that we heard from one of our stamping customers. But again, everyone is looking forward trying to read the tea leaves, but there's really no immediate impact yet.

Q: Hi, good morning, guys. Hope everybody is doing well. Thanks for taking my questions here. So first question on the outlook for loan growth. Do you feel that kind of just general uncertainties have kind of given some borrowers pause in that if we do strike some agreements on the tariff front that you could see kind of like some pent-up demand and growth really accelerate in the coming quarters?

A: Hey, Brandon, this is Joel. It's hard to say but I think that's kind of the way I'm looking at it. I think it's common sense that if you're a business owner right now we're seeing some activity. Don't get me wrong. And some replacement of equipment that sort of thing. But in terms of significant expansion plant additions those are few and far between right now and people are -- I do think they're just kind of waiting for some clarity on -- from an economic front which we were headed. And -- but I think there's absent the news headlines coming into the year, we all felt really good about the economy and felt we were kind of status quo. And automotive industry was pretty stable, A little shift with EV transition going on. But our customers were dealing with that. And so I do think that there could be some pent-up demand on the backside of this if the news calms down.

Q: Yes. Hi, guys. Good morning. Thanks for taking the questions. Maybe Gavin, where do you – deposit costs, they came down nicely in the quarter. Just curious as long as the Fed remains on hold presumably through the second quarter, how much additional deposit cost leverage you think you have just based on kind of competition the footprint and just kind of what you're seeing in terms of deposit pricing today that's coming in?

A: Yes. That's a good question. I'm not going to have an exact dollar figure or a percentage figure forward. But I would say that clearly the deposit, downward leverage is not what it was right? The longer we're here. And it's really going to be dependent on the market. We continue to try to find a basis point here or there wherever we can. But there's plenty of competition where we operate. And so I think I'd give you this for a reference point, the maturing CD book versus kind of where they're coming on in terms of the specials we have. It's about 5 basis points better right now maturing versus new. So kind of give you an indication of where the pricing is at. It really has I think level off. But the other big key to this is going to – force is going to be the mix. So how we're funding the bank.